Court Rules: Homeowners Association at Risk of Losing Insurance Due to Misrepresented Information
Lake Lindero Homeowners Association (LLHOA) held an agreement with Golf Projects Lindero, Inc. (GPL). GPL would maintain and manage common areas, parks, the lake, country club, restaurant, tennis courts and other amenities within the association. This agreement began in 1994.
In 2013, both parties extended the contract through 2050.
In 2018, LLHOA began to reassess the contract with GPL. It sent a series of notices to GPL, ten in total, demanding it take action on numerous issues around the LLHOA or face termination. As an added measure, the LLHOA’s board president brought on other property management companies to inspect the property.
In July, the board terminated GPL’s contract. GPL filed suit.
LLHOA had submitted an application for insurance to Atain Specialty Insurance Company in May 2018.
In that application, LLHOA was asked if in the preceding five years it had any claims against it. The LLHOA said no, it was unaware of “any fact, circumstance, or situation that result in a claim against LLHOA.” Atain issued the policy.
When the GPL suit surfaced, Atain accepted the defense without a reservation of rights. However, as the allegations unfolded, Atain soon learned that LLHOA had been involved in several claims in its preceding five years to attaining insurance.
In 2015, the Department of Alcoholic Beverage Control for the state of California filed a complaint against LLHOA due to a misuse of its liquor license. In 2017, the State of California Water Resources Control Board told LLHOA it was in violation of a license agreement regarding its use of the property’s lake. LLHOA was required to pay $310,000.
Atain was not happy. The insurer sought summary judgment, with the intent to rescind its insurance policy from LLHOA. The association also filed for partial summary judgment in a cross motion, stating Atain had a duty to defend.
Scorecard: Upon review, the court determined that LLHOA’s concealment and/or misrepresentation of material fact did entitle Atain to rescind the policy. It granted summary judgment to Atain.
Takeaway: When buying insurance, best practice is to disclose all relevant information in order to receive both coverage and a healthy relationship between insurer and insured alike. &